Voting with your portfolio: according to Leonardo Becchetti, Chairman of the Etica Funds Ethics Committee, every financial transaction made consciously is an act of active citizenship that can change the world.
The option to buy consciously
In a market dynamic based on supply and demand, consumers and investors use their buying and investing choices to respond to the multiple products and services companies offer.
In this environment, businesses cannot afford to ignore their customers, who therefore have a very strong influence: their “financial actions” are capable of tangibly changing the weight and direction of demand. By changing the volume and quality of their consumption, they can shape the types of products available and the market itself.
Voting with your portfolio: A silent revolution
This “bottom-up” approach effectively means “voting with your portfolio”, a phrase coined by Professor Leonardo Becchetti, Economics professor at the University of Rome Tor Vergata Faculty of Economics and Chairman of the Etica Funds Ethics Committee.
According to this point of view, buying and investing is like going to the polls: it is an individual action that supports the collective good, a transformational political choice that can be made daily and silently, without having to wait for an election.
It is part of a participatory and democratic process that creates a sort of “consumer sovereignty”, with the consumer transitioning from a passive role in economic activities into an active decision maker.
From consumer to consumer activist
For citizens, being aware of this power and putting it into action means actively exercising your political rights and becoming a consumer activist, an important player on the front line of their community’s social and economic future.
By bringing together and steering individual choices, collective action can therefore increase its decision-making weight and, over time, transform an undesirable economic profile and promote a more ethical approach. Take, for example, the concept of fair trade, which just a few decades ago was a mere aspiration yet today is a business practice followed by multinational corporations. This is a concrete example of how the growth of alternative demand can drive the market in a different direction.
Voting with your portfolio and ethical finance: investor activists
The logic of responsible consumption is the same that governs ethical investment decisions: responsibility, participation, and social and economic justice.
Yet while direct consumer action is a daily, tangible act; however, the practice of investing may seem more abstract and elusive. Entrusting your savings to an investment company often leaves us in the dark about how our money is really being used.
Etica Funds, which aspires to the principles of ethical finance, has made investing in economic activities that support the common its entire purpose. Investors can drive real change by rewarding companies that protect people’s rights and the planet and steering clear of industries that are socially and environmentally risky, such as weapons, gambling, and fossil fuels.
A virtuous cycle
By buying certain products or choosing specific investment solutions, consumers and investors promote and recognise certain economic actors over others.
For example, they can decide to reward companies that, despite having to compete in the market, show that they care about employee working conditions and the environment.
In this way, they initiate a two-way process. Ethical companies receive the approval of consumers and reciprocate that trust by providing sustainable goods and services to the community.
Companies that operate in a challenging environment stand against marginalisation, crime, and environmental negligence. Companies that fight corruption and exploitation ensure a financial system that is more equitable for everyone. Companies that include immigrants, prisoners, and disabled people generate savings on management costs and government subsidies.
A decision of interests
In truth, voting with your portfolio is an individual choice to protect your own interests. By rewarding economic activity that centres around human rights and the environment and is fiscally ethical, consumers and investors are not only driven by altruism but are protecting themselves as well.
In fact, responsible companies protect their employees by spreading inclusive models throughout the labour market, curb pollution by having a positive environmental and social impact, pay taxes in the countries where they generate revenue, and contribute to social welfare.
Voting with your portfolio: Obstacles
There are four obstacles to voting with your portfolio:
- understanding the power we have;
- accessing information on the ethical characteristics of products;
- coordinating choices;
- price differences in sustainable and non-sustainable products.
As Mr. Becchetti says, “This explains why the area where voting with your portfolio has made enormous progress is investment funds, which are increasingly voting with their portfolios and demanding that companies abide by specific environmental and social standards, also because they believe that being accountable to these standards means exposing themselves to risk. Why are funds the first to do this? Because right from the outset they clearly resolve the problem of awareness and information as well as coordination”.
What is the “cost” of voting with your portfolio?
Every responsible buying choice comes with responsibilities and consequences. Today, in an environment of consumerism, if you choose to vote with your portfolio (and therefore prioritise the ethical value of products and services), you must accept a certain margin of added expense. The current market system is still driven by price competition, a mechanism that often penalises quality and rewards less scrupulous operators to maximise profits. However, the lowest price is almost never the fairest one: someone else pays the difference, perhaps someone far away, with the exploitation of labour, harm to the environment, or the destruction of the healthcare system. By paying a little bit more for their investments, consumers can make a free and informed choice to buy a fair and robust product.
Yet when it comes to investment services, voting with your portfolio doesn’t cost more. An ethical investment is more transparent and does not have added costs compared to other forms of investment. The difference is that it generates much higher social and environmental value.
What can we do?
To vote with your portfolio, it is fundamental, above all, to be aware and well-informed. Today, there are a variety of tools and opportunities to find data and information about products and companies.
The websites and apps available in the digital sphere allow potential investors to see rankings, find information on the ethical practices of brands, and read what’s behind the labelling and pricing of a product (social value, respect for human rights, good environmental and energy saving practices, etc.).
Accessing quality information is a good way to recognise deserving economic actors by exposing greenwashing and social washing.
Raising awareness
Some financial companies have tried to label their products as “sustainable”, when in reality “not all that glitters is green”. To assess the sustainability of an investment, it is necessary to have ample experience and a robust process. Etica Funds was established in 2000 as an asset management company specialising in sustainable and responsible investments, and all Etica Funds products have always been 100% responsible.
The company’s mission is enshrined in its by-laws: to represent ethical finance values in financial markets, with the firm belief that it will translate to added value, not just for society and the environment but for the investments and assets as well. Ethical finance puts environment and society at the heart of financial decisions by seeking to make a dual impact: on investment value and on the planet.
What can institutions do?
Besides citizens, the state must also do its part. One of its duties is to guarantee correct and transparent information on companies’ environmental, social, and financial activities. High quality information is fundamental to equip citizens to make informed buying and investment choices.
Additionally, institutions can act by making laws and regulations that provide incentives and subsidies to companies that abide by and promote values that enhance community welfare.
These are concrete actions that assist in ethically guiding citizens’ purchases and investments, trusting the most efficient supply chains in economic and financial terms as well as from a social and environmental point of view.
